The Tax Cuts & Jobs Act (TCJA) arrived with significant guidance, setting new rules for entertainment and club dues that every business owner needs to know.
Prior to TCJA, meals and entertainment were 50% deductible if not lavish or extravagant and there was a business purpose. Among the 50% deductible items category were event tickets, golf outings, per diem meals, client lunches, and more.
Rules for Entertainment
Starting in 2018, entertainment expenses are no longer deductible:
- The 50% deduction to bring clients to the Huskies, Mariners, or other sporting events is now lost.
- The 80% charitable deduction related to seat-related gifts to college sporting events is also disallowed. Skybox fees remain non-deductible.
- The IRS recently clarified that separately stated meals at entertainment facilities will still be 50% deductible with a business purpose.
Meals and entertainment expenses for employee parties, employee snacks, and golf outing sponsored advertisements remain 100% deductible. However, meals provided for the convenience of the employer are reduced from 100% deductible to 50% deductible. Other meals including client meals, employee meals, travel meals and per diem meals remain 50% deductible unless separately billed to a client.
Rules for Club Dues
Club dues can be another topic of confusion as to what is and what is not deductible. Under the new rules, any membership dues paid to a club for business, leisure, recreation, country club or other social purposes are 100% non-deductible, unless they are included as compensation on an employee’s Form W-2.
While club dues are specifically disallowed, the meals at these locations remain 50% deductible, as long as there is a business purpose.
There is an exception that allows a 50% deduction for dues paid to professional, civic and public service type organizations, as well as business leagues, chambers of commerce and boards of trade.
With these new tax law changes, you might want to rethink your entertainment and club dues expenses and how they are accounted. Please consult your Clark Nuber professional or Rene Schaefer for additional guidance and questions.
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